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Here’s why Best Buy is eyeing more store closures

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Despite a ton of cash on its balance sheet and profits riding high a year into a pandemic that has spurred epic tech gadget buying, even mighty Best Buy realizes it has to slim its store base down further to position for the future of accelerated digital consumption. Yahoo Finance’s Brian Sozzi shares the details.

Video Transcript

[MUSIC PLAYING]

- Welcome back to Yahoo Finance Live. Best Buy got a boost during 2020 as shoppers loaded up on new gear to work from home, but with more sales happening online, the company is looking to pare back its physical store locations. Brian, you've been taking a look at this. What are the company's plans going forward when it comes to brick and mortar?

BRIAN SOZZI: Well, I sure hope my local Best Buy doesn't close, because I actually like going there, and it's right by my house, but nonetheless, Best Buy CEO Corie Barry dropping this nugget on their earnings call yesterday, which is only now starting to gain some attention this morning.

I have a bigger story on it right now on Yahoo Finance, but Best Buy noting it closed 20 large format stores last year and the year before. Now they're signaling to investors they might move a little more aggressively this year, Barry noting in the conference call yesterday they have 450 store leases coming up for renewal, for renewal in the next three years or 150 a year. That is a large number of renewals, and they have two choices-- either close some of the, close stores that are underperforming or negotiate lower, really, rental rates for these locations.

Either way, it could be a win-win for Best Buy investors, because when you see retailers do that historically, it helps improve their profits. But at the end of the day, why you're seeing Best Buy I think consider a more aggressive pace of store closings is because how people shop their stores is changing. They're buying online. They're having it delivered right to their house. They're having increasingly same day delivery service of Best Buy products, and if they're not doing that, they're ordering online and parking in the Best Buy parking lot, which the company started doing during the pandemic, and having the products really just brought to their car and then they go home.

So why do you still operate all of these stores? Now, I want to-- this is not a mass store closing, closing plan like we've seen from dying Macy's or the bankrupt JC Penney. It's just a retailer that has been doing very well looking at positioning for the next 10 years of retail consumption.

JULIE HYMAN: I mean, what the next 10 years are going to look like is really the big question here, of course, Sozzi, because you know, Best Buy, like many other retailers selling stuff for the home, has benefited during the pandemic. We actually, if you look at the overall retail sales numbers for the US, electronics was one of the areas that really stood out for its strength last month after not doing so well in December, which was something really fascinating.

And Best Buy, maybe they're looking at that 10 years, but the second half of the year, as we know from the companies, maybe looking a little shakier as people change their spending habits, so you have to wonder then, there are still a lot of people moving into new homes and they're going to need appliances, so even though Best Buy is saying maybe things slowed down a little bit in the second half year, I wonder how much that's actually going to happen if people need-- you know, if they're moving into new houses, there's probably going to be a stellar replacement cycle that maybe will be somewhat supportive to Best Buy, Brian.

BRIAN SOZZI: And right, and that's why you're not going to see Best Buy come out here like a Macy's and announce, hey, we're closing 125 stores over the year and a half to slash and burn expenses because nobody comes to our stores. They're completely devoid of inventory, and they're absolutely irrelevant in the minds of consumers. Best Buy is a top of mind destination right now.

They're selling things, to your point, that people need because they have just bought a new home. We've seen appliance sales surge during the pandemic. You're seeing all sorts of tech gear. We've seen Sonos equipment fly out the doors at Best Buy, and then also, let's keep in mind, a lot of the stuff that you order online from Best Buy is actually picked in a store and then sent to your house by an employee. So they're using these stores essentially as fulfillment hubs.

- That's right, Brian, and something that we've also seen from Target as well, but you know, we talk about tech having tough comps this year, and it seems like Best Buy might also be in that category.